| The ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS. Any remittance beyond USD 2.5 lakh or its equivalent in foreign currency would require approval from the RBI. Earlier, the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit. According to the notification, the Finance Ministry, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including forex spending through international credit cards under the LRS. The Union Budget 2023-24 hiked TCS rates to 20 per cent, from 5 per cent currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023. Under the LRS scheme, Indian residents are allowed to remit up to $250,000 per year without any prior approval from the RBI. Banks deduct tax collection at source (TCS) on foreign remittances, So, basically, TCS is collected by the seller at the point of sale. The decision to bring overseas credit card use for all transactions under the Liberalised Remittance Scheme (LRS), which puts an additional 20 per cent TCS burden on them, appears to be an ill-advised and regressive move that will hit India’s strong push towards formalising the economy, and encourage people to go back to cash. The move will impact hundreds of thousands of private and business travellers who will have to set aside an additional 20 per cent that will eat into cash flows, bloat budgets, and could end up militating against the seamless movement of people in a globalised world. The decision will also lead to a serious compliance burden, and reams of paperwork as the demand for refunds pile up — with little revenue boost for the government given that TCS is offset against a person’s tax liability. Tracking LRS may be important, but it should not become a case of throwing the baby out with the bathwater. |
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20% TCS to be charged on Credit Card spends outside India
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